Current account deficit hits Sh151bn on imports surge

The gap between Kenya’s imports and exports widened by 62 per cent in the second quarter of the year, contributing to the pressure on the local currency.

The gap, also called current account deficit, increased because the value of exports fell while that of imports grew, official data shows.

The deficit deteriorated by 61.8 per cent to Sh151.2 billion, one of the major reasons the Kenya shilling has lost 14 per cent since the beginning of the year.

The deficit is mainly due to the country importing more machinery and other capital goods for key projects such as the multibillion-shilling standard gauge railway linking the port city of Mombasa and Nairobi.

Treasury secretary Henry Rotich said in July that the current account deficit was likely to widen in the next two years through growing imports, given that infrastructure spending on flagship projects will continue up to the end of 2017.

“The worsening of the current account deficit in the second quarter of 2015 could be attributed to the increase in merchandise trade deficit that deteriorated to a deficit of Sh246.369 billion,” said the Kenya National Bureau of Statistics (KNBS) in the latest quarterly report on the economy.

The country’s exports value slumped to Sh133.5 billion between April and June from Sh141 billion for the same period last year while imports grew to Sh379.9 billion from Sh371.5 billion, KNBS data shows.

The expanded import bill and reduced exports pushed Kenya’s balance of trade to a deficit of Sh246.3 billion compared to a Sh230.5 billion deficit reported in the second quarter last year.

However, the current account deficit was kept low because of the positive balance on the services account and remittances.

Remittances from Kenyans in the diaspora grew 25.7 per cent to Sh38.2 billion between April and June.

With the deteriorating situation on the current account, the overall balance of payments position also worsened to a deficit of Sh47.9 billion during the second quarter of 2015 from a surplus of Sh166.8 billion in the corresponding quarter of 2014.

READ: Shilling under pressure as export-import gap rises by Sh115bn

Aly-Khan Satchu, chief executive of financial advisory and data management firm Rich Management, said it would be difficult to increase exports in the short term, but increasing rates on the Treasury bill could lure foreign funds to reduce the balance of payment deficit and support the shilling.

“We can do little about the exports right now, but with high interest rates on the Treasury bill, we can attract foreign cash to invest in them,” said Mr Satchu.

Exports to neighbouring Tanzania and Uganda — the largest buyer of Kenyan goods — have been declining since 2011 on what experts attribute to a vibrant manufacturing sector in the east African nations and local firms opening shop in Kampala and Dar es Salaam.

Goods that Kenya mainly sells to the two countries include cement, iron and steel, medicine and pharmaceuticals, paper as well as petroleum products for land-locked Uganda.

The high import bill has piled pressure on the shilling, which has shed 14 per cent of its value to the dollar since the beginning of the year to trade at Sh105.5 amid falling revenues from tourism and horticulture.

East Africa’s largest economy is highly dependent on agriculture, which accounts for slightly over a quarter of its gross domestic product and half its exports.

The KNBS says the volume of cut flower exports shrunk 4.2 per cent in the second quarter, vegetables reduced by 11.6 per cent while coffee exports fell by 10.5 per cent. On the flipside, fruits exports grew 22.2 per cent.

Though the volume of tea, Kenya’s highest foreign exchange earner, dropped by 17.2 per cent in the three-month period, higher global prices helped to remove the sting.

Kenya also benefited from lower crude global prices that helped it cut its import bill for petroleum in the second quarter by 1.6 per cent to Sh535.6 billion.

Tourism declined for the seventh consecutive quarter on the poor performance of hotels and restaurants as well as accommodation, showing the extent to which rampant insecurity has wreaked havoc in the sector.

It, however, contracted at a much slower pace of 0.8 per cent than the 19.3 per cent at which it shrunk in the same quarter last year.